Interview of the week

The European insurance sector was and still is very positive about Solvency II. We believe that it will really change not just how companies operate but also how a supervisor operates, regulation should react ultimately.

XPRIMM: First of all, what is the purpose of your visit in Romania?Michaela KOLLER: The purpose of my visit here is to get a deeper insight into the Romanian market. Certainly for our work at European level, it is extremely important to have a clear insight into how the markets react on any potential general regulatory development and Romania is a very important market. We have seen a lot of positive development coming from this market and of course, we are in permanent contact with our members, because UNSAR is represented in many committees, but it is best to be in place to get a feeling from the market. I had a meeting with some members of the board of UNSAR, which was very instructive and gave me also a lot of feedback on where the problems are, on which issues we need to work at European level, what we can do to advance things in a positive direction.

XPRIMM: The European insurance market passed a very difficult period lately. Would you say that this crisis is it over or do we still have to work for that?M. K.: First let me state, that it wasn’t the insurance segment that triggered the crisis. If anything, the insurance segment played a stabilizing role in the crisis. We have really stayed with our investment and we have a long term perspective as an industry. What we see now, is that we are affected by reactions had by regulators on the financial crisis. So we are confronted with a lot of initiatives on the regulatory side, even the long standing project launched long before the crisis, Solvency II, is to a certain extent also affected by this crisis and impacted by it. Is the crisis over? I think we are in a phase where people are trying to find the right responses to avoid developments. And certainly from the insurance side I can see we have no indications that insurance at any point in time had a responsibility or might trigger anything in the future. So in that respect we are somewhat relaxed about these issues but we are still faced with all this regulatory initiatives, we react on them and we are keen to avoid getting too many rules that aren’t really appropriate for our business for the wrong reasons.

XPRIMM: What will be the impact of Solvency II on the insurance companies? M. K.: The European insurance sector was and still is very positive about Solvency II. We believe that it will really change not just how companies operate but also how a supervisor operates, regulation should react ultimately. We believe we will have companies where we have the risk management ingrained as an essential part of the company. Obviously it’s not that this has never happened before because along in many markets we have seen that the preparation for Solvency II has long started and we like this very positive approach that Solvency II brings to the market.

XPRIMM: There were a lot of questions about a possible price increase after the implementation of Solvency II. Is that a real threat? M. K.: At this stage, the whole idea of Solvency II was not to increase capital requirements because any increase in capital requirements would have an impact on premium. But the idea of Solvency II was to align capital requirements with the underlying risks. So what you will see is that companies with more risk appetite will face higher requirements while companies with lower risk appetite will have lower requirements. That is something that the market will tell. But on average the idea was still that there shouldn’t be any increase in requirements. We are now at a phase, the end phase before Solvency II framework will be approved and adopted and obviously there are still open issues from an industry perspective, we are concerned about certain areas where we feel that it could lead to increases in capital requirements and as a result also to increases in premiums ultimately. But this is still a stage where the negotiations are ongoing and the commission is addressing all issues that the industry has raises as concerning points. In a very robust work stream, we have all reasons to believe that it is a high interest to find good solutions and at this stage I wouldn’t like to be negative about the potential output. There are risks but at this stage I have reasons to believe that the problem will be addressed properly and that we find the right solutions.

XPRIMM: What can you tell us about the future projects of the commission?M. K.: Apart from Solvency II, we are very interested in the review of the IORP Directive (Institutions for Occupational Retirement Provision), that’s about pension funds, we are coming obviously from a level playing field perspective, especially with Solvency II in the back of our minds, so that will be something we will be very interested in. But there are also many initiatives that the commission will take in terms of conduct of business. So we will see an Insurance Guarantee Scheme Directive proposal, initiatives in the area of reviewing the Insurance Mediation Directive, also on PRIPS’ s package to retail investment products. And all these will be the top of our agenda. It will be challenging to work with the new supervisory authorities, the new regime. We will probably see a lot of impact and a lot more centralized approaches but we will prepare for that as we go along.